As new regulations and ultra-low interest rates squeeze bank profits, the biggest banks have been nurturing their private banking units, fostering financial relationships with the wealthiest of clients. Among the banks offering special treatment, for a fee, is Bank of America (NYSE: BAC ) .
Private banking is expanding
Though the concept isn't new, private banking has gained traction as a way for banks to plump earnings without incurring the wrath of banking regulators or Main Street banking customers. Personalized services, such as asset and investment management, after-hours consultations, and exquisitely appointed offices are all on tap for clients with the right credentials -- namely, lots and lots of money.
Both Bank of America and JPMorgan Chase (NYSE: JPM ) have developed successful private banking departments, and both are continuing to grow operations. JPMorgan is adding 200 new positions to its wealth unit, and B of A is hiring hundreds more – despite thousands of looming layoffs in its other banking departments. Citigroup (NYSE: C ) has also expanded its Citi Private Bank, particularly in the San Francisco Bay area.
Not wanting to be left out in the cold, Goldman Sachs (NYSE: GS ) started its own private bank this year, looking to make up for some of its lost trading revenue. Though its upscale lending business is fairly new, it has a ready-made customer base with its wealth-management clients, as well as the large companies with which it has historically done business.
Wells Fargo (NYSE: WFC ) has launched its own concierge bank, Abbot Downing, which was melded with the firm's Lowry Hill boutique section. The new lending arm unabashedly caters only to the ultra-tony set, deigning to do business exclusively with those who have at least $50 million to invest.
Morgan Stanley (NYSE: MS ) , which recently agreed to buy the whole of Smith Barney from Citi, is also looking to grow its own wealth business. With nearly $60 billion in deposits sitting at Citibank until the MSSB purchase is completed sometime in 2014, Morgan Stanley has complained that it is restricted in its lending ability. This is keeping it far behind rivals JPMorgan, with its 18% pre-tax profit margin, and B of A, which boasts a pre-tax margin of 20%. Morgan Stanley's margin is currently 13%.
One Fool's take
For Bank of America, CEO Brian Moynihan's recent presentation at the Goldman Sachs conference showcased just how well the bank's boutique business is doing, and how much others have to be jealous of. The bank has increased deposits by nearly $5 billion year over year, not an insignificant source of cash for lending -- which has grown by a bit more than $5 billion. With a client asset base of $2.26 trillion, it's easy to see why B of A leads the way in the private banking sector.
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